Unemployment Rate

The unemployment rate is a measure of the prevalence of unemployment and it is calculated as a percentage by dividing the number of unemployed individuals by all individuals currently in the labor force.


Formula:

Unemployment rate = Number of Unemployed / Number of People in the Labor Force

Workers who are not actively searching for work are called "discouraged workers" and they are not included in the labor force and therefore not counted among the unemployed. This is one of the limitations of the unemployment definition. In fact, there can be a decline in the unemployment rate even without job creation.

During prolonged periods of recession many unemployed individuals may have been seeking a job for many months and hence become discouraged. It is very important when analyzing the unemployment rate to identify whether decrease is due to job creation or an increase in discouraged workers.